One of the scariest moments in life for many investors is an economic recession. During such times investing may sound crazy to most people especially those that don’t know a thing about investing. During a recession the stock market is the first to plummet even before jobs start to get cut across the country. However, a wise investor can earn enormous profits during these times when the market panics and mostly every stock is oversold and cheap.
Legendary investor Warren Buffett is one of those business men that go on a buying frenzy when the market plummets. Warren knows that there are many companies that will remain profitable during this period and that when the economy stabilizes, those stocks will rise again at even higher prices than they were before the meltdown. Why Warren and many value investors tap dance when the market falls? Anyone that has read about Warren knows that his philosophy revolves around buying good businesses at a cheap price in order to invest at the lowest risk possible and ultimately sell when the stock is trading at a price higher than his calculated intrinsic value for the stock.
But what stocks are the safest ones to buy in the middle of a crisis? There are many companies to invest in that are almost recession proof. Think about companies that manufacture goods that are very important to every day life. During a crisis car sells may go down substantially and many people avoid spending cash on things that are secondary like gadgets, televisions and other electric appliances but, people still eat, brush their teeth, need medicine, have to shave, buy groceries and file taxes.
Think about it, it doesn’t matter how bad the economy is for people need to continue living. Companies that offer products that are an important part of daily life go down in value during a recession but still manage to keep profits up. This is why many wise investors get ready to buy a lot of stocks when the market plummets. In addition, during a market crash many companies repurchase shares taking advantage of market conditions in order to return the most value for the money to shareholders. Lower shares outstanding results in higher dividends per share in the case of dividend paying stocks or fast capital appreciation on those that don’t. This is the reason why it is not rare to see many people triple their money invested after a recession is over especially if dividends where reinvested. A real life example is McDonald’s which almost doubled in price during the financial crisis not to mention that dividends increased substantially.